Glowpoint, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2018; filed August 9, 2018. The filing identifies the registrant as Glowpoint, Inc. (not Taoweave, Inc.); verify the intended company and filing.
Business context and financial results
Glowpoint provides managed video-collaboration and network-application services. It reported one operating segment. Unless otherwise noted, figures below are in millions of dollars.
| Metric | Q2 2018 | Q2 2017 | First half 2018 | First half 2017 |
|---|---|---|---|---|
| Revenue | $3.293 | $3.856 | $6.767 | $7.936 |
| Gross profit* | $1.363 | $1.595 | $2.690 | $3.227 |
| Gross margin* | 41.4% | 41.4% | 39.7% | 40.7% |
| Operating loss | $(1.679) | $(0.179) | $(2.559) | $(0.449) |
| Net loss | $(1.689) | $(0.590) | $(2.974) | $(1.258) |
| Net loss per share, basic and diluted | $(0.04) | $(0.02) | $(0.06) | $(0.03) |
*Gross profit and margin calculated as revenue less cost of revenue, excluding depreciation and amortization.
Cash, debt, and liquidity
- At June 30, 2018, cash was $2.678 million, working capital was $3.744 million, and debt was zero, down from $1.8 million in debt at December 31, 2017.
- First-half operating cash outflow was $0.689 million, investing cash outflow was $0.222 million, and financing cash outflow was $0.357 million. Cash declined by $1.268 million to $2.678 million.
- The company raised $1.527 million net from Series C preferred stock and repaid its Western Alliance and Super G borrowings. First-half cash interest paid was $0.318 million.
- Management said current projections indicated resources sufficient to fund operations for at least 12 months after filing, but cautioned that additional capital may be needed. It anticipated lower operating cash flow and higher capital expenditures in 2018 versus 2017.
Material changes and unusual items
- Revenue declined 15% year over year in both Q2 and the first half. Video-collaboration revenue fell 14% in Q2 and 17% for the first half; network-services revenue fell 20% and 21%, respectively. Professional and other services increased, partly due to equipment resale.
- Management attributed declines to customer attrition, lower demand, competition, pricing pressure, and greater use of desktop and mobile video products. It expected the negative year-over-year trend in video-collaboration and network-services revenue to continue in the second half of 2018.
- Goodwill impairment charges were $1.525 million in Q2 and $2.175 million for the first half, following declines in revenue and stock price. Goodwill remaining at June 30 was $5.575 million; further declines could trigger additional impairment.
- First-half operating loss widened substantially, primarily from lower revenue and goodwill impairment, partly offset by lower cost of revenue, R&D, and depreciation and amortization. General and administrative expense increased.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method; it reported no material opening-equity adjustment. Deferred revenue at June 30 was $60,000.
Outlook, risks, and subsequent events
- Glowpoint planned 2018 launches of services focused on automation and microlearning and investment in product development, sales and marketing, and capital expenditures to address declining revenue. Management warned there is no assurance the offerings will gain market acceptance or reverse the trend; enterprise sales cycles may be six to 18 months.
- Potential future equity financing is subject to approval rights held by certain Series B and Series C investors. The company warned that inability to raise capital on acceptable terms could materially harm operations and may require significant reductions.
- On July 5, 2018, NYSE American notified the company it was not meeting continued-listing standards because of its sustained low share price. The company was required by January 5, 2019 to effect a reverse split or otherwise demonstrate sustained price improvement; continued listing was not assured.
- On July 21, the board authorized repurchases of up to $750,000 of common stock, without requiring the company to make purchases. In July, 500 Series C preferred shares converted into 1,666,666 common shares, leaving 775 Series C shares outstanding as of filing.
- Two customers accounted for 19% and 25% of Q2 revenue and 21% and 24% of first-half revenue. Management reported no legal proceedings it believed would materially adversely affect the company.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for Glowpoint, Inc., despite the request metadata naming Taoweave, Inc.
- Track revenue, customer attrition, pricing, and progress in launching and selling the planned automated/software-based services.
- Assess cash consumption, capital spending, and whether management’s stated 12-month liquidity expectation remains supportable.
- Review potential dilution and financing restrictions associated with preferred-stock conversions and investor approval rights.
- Monitor NYSE American listing compliance and any further goodwill impairment or share-repurchase activity.